How To Get Rich: The Devil Must Be In The Details

by Millionaire Mommy Next Door on May 31, 2009

in Debt Reduction,How To Guide,Save Money (frugal ideas)

Recently, I wrote the “The World’s Shortest Guide On How To Be Thin and Rich“. Here’s the how-to-be-rich part, in it’s entirety:

  1. Spend less money than you earn (or to put it another way, make more money than you spend)
  2. Invest in your future

That’s it! Truly, this is all it takes to achieve financial freedom.

Since the principles are certainly very short and sweet, the devil must be in the details. So today, let’s take a closer look at the first step. Within step #1 above (spend less money than you earn / make more money than you spend), you have three choices:

a)  Spend less money. Fortunately in today’s economic climate, decadence is passe and frugality is the new cool. Still, I find that most people I talk to through my coach business are deeply in debt because they are living an unsustainable lifestyle. Those with a negative net worth often drive new(er) cars and live in big houses. If you are serious about spending less money, recognize that housing, cars and taxes dominate most budgets. Rather than focusing on the small stuff like your cable bill and Starbucks treats, make dramatic cuts to your big budget busters first. Sell your late-model car and replace it with a less expensive used one. Now take your newly found cash — plus the monthly savings from eliminating or reducing your car payments — and throw it at your debt. If you are debt-free, throw it at your retirement and savings accounts instead. Do the same with your other big ticket items, including your house. Once you’ve tackled the biggies, you can whittle away at the little stuff (cable, Starbucks, etc).

~ OR ~

b)  Make more money. Within this option you have two basic choices: work more, or get paid more for the work you already do. Personally, I prefer to get paid more for the work I’m already doing. Ask for a raise or a promotion; cut out the middleman (your employer) and work for yourself; increase your rates; hire subcontractors and delegate extra work for a share of the profits.

~ OR ~

c)  Do both.

Which option do YOU prefer?

{ 14 comments… read them below or add one }

Chris May 31, 2009 at 2:31 pm

Why not both? I have always lived below my means but continue to either get paid more at my jobs, or doing what I am right now, trying to start a little dise business with a product idea I have had for a long time.

Reply

Mrs. Money May 31, 2009 at 3:25 pm

I’d rather spend less, because to me, time away from work is more important than having name brand clothes, satellite tv, or anything of the sort. I prefer the simple things!

Reply

Jan June 1, 2009 at 6:49 am

I prefer to lower my expenses. It requires less effort. :-)

Reply

Melanie June 1, 2009 at 8:22 am

c)
Without a doubt…we always look for ways to cut spending and increase income! Why not do both – you will get to where you are going faster!

Reply

MoneyFunk June 1, 2009 at 10:59 am

Sometime little comments have HUGE impacts. Cutting the little stuff has become a stressor in my family. Me nagging my hubby about spending a little bit more (really a minute little bit)…Its not fair to my husband. Why didn’t I look outside the box before… Your a) Spend less money… rather than focusing on the small stuff (which I do) … make your dramatic cuts to your big budget busters first. Yes, like my car. Instead of focusing on the minute… I need to focus on really getting rid of the car payment. Thank you for the simple, but effective advice. :)

Reply

Kristin June 1, 2009 at 3:15 pm

We’re mainly spending less. I finally graduated last month and can’t find a job, so I’ve been blogging and mystery shopping/merchandising/auditing to make some money. We’ve been surviving on one car and have considered getting a new one since there have been some deals during the recession/bailout. We’ve been teetering between yes and no on the decision, so for now it’s a no since the repair will be cheaper than a car payment. Not sure at what point we should purchase a new car. Seems like every 6 months ours suck another few hundred bucks away from us – we’ve had them for about 5 1/2 years, but they are 11 and 16 years old.

Reply

hustler June 3, 2009 at 3:04 am

Right now I’m realizing how much taxes eats away at my paycheck. I’m thinking I need to max out my 401k with some pretax money instead of (at the same time as) reducing my electric bill. But it would sure be nice to make more money!

Reply

Go June 3, 2009 at 10:09 am

Glad I stumbled upon your blog. Yeah I surely could use more income. I’m moving to Cali and is trying to get rid of my debt before I leave the great state of Louisiana and save 6 months of expeneses. The only problem is I have only six months to do this. I’ve been slacking horribly but I know there are some things I must do before I go.. I’ll continue to read your blog. I can never get too much information on my finances !

go.

Reply

Jessie June 3, 2009 at 1:53 pm

I try to cut down on the small things – becuase I simply do not have the large items that you speak of yet. No fancy new car, no fancy new house.

I rent, and have 3 roomates to lower rent and utility costs and I own a $1500 car – that said, I still struggle to find a blanance between spending and saving.

My trap is that I funnal a large amount of money onto my visa, student loans and various savings accounts (house fund, RRSP, emerg, planned spending ect) – that I end up “Having” to use my credit card for things like groceries (even though – I do plan for that) because unexpected things come up.

The challenge is avoiding any unexpected emergency or unexpected expenses while your building your emergency funds.

Reply

jennydecki June 3, 2009 at 2:41 pm

We do both. The only difference is that we do still have some debt and I refuse to “whittle away” at debt. i want it saved in a big pile until there is enough to get rid of the student loan and then make one payment and make it gone.

Mostly this is because since we are self-employed I’d always rather have a huge emergency fund than a smaller emergency fund but a lower overall balance on my debt.

Of course, we don’t impulse buy and have very low monthly living expenses (considering we do have a mortgage lol) so this is a safe option for us. We’re not going to freak out and spend it on a Disney vacation or something…

Reply

Suz June 3, 2009 at 3:47 pm

I would love to do both! I’m currently using sales and coupons, both online and at brick & mortar stores to make a big impact on our family finances. I’m currently working on a website to promote coupon classes and saving money.

Check out my blog FamilyMakesCents.com & website TheCouponClass.com (we’re currently looking for teachers)

Reply

Jerry June 5, 2009 at 10:28 am

We are doing both! I have returned to school, which will lead to more income when I’m done, and we have cut back on almost everything – the funny thing is, we are united in this effort and we don’t even feel like we are deprived of anything (except maybe some stuff that isn’t available where we are living overseas). Doing both is the ultimate insurance for achieving financial success, I think, and it cuts the time that it takes to get there…
Jerry

Reply

Sarah May 8, 2010 at 10:55 pm

I like a lot of your no-nonsense advice, but I also think you don’t necessarily take into account people who a) are already in deep trouble and want help to turn their situation around, and/or b) have moral or religious beliefs that conflict with a money-first outlook.

My husband & I have 4 (soon to be 5) children, 2 of whom we foster. We feel that foster parenting is a noble calling, and fulfils not only our family-first priorities, but also our desire to give back out of gratitude for our many blessings. (Also, not everyone supports the liberal view of family planning.) Prior to embarking upon this rewarding and enlivening journey of parenthood, we had made some poor financial decisions (student loans, car loans) which put us in the difficult position of having more debt than our combined income could justify. (It didn’t help that the sharp drop in auto prices immediately after purchasing a car put us way upside-down on the loan for it.)

For the past 2.5 years we have been doing all we can to cut expenses and increase our income, but with such a large family we absolutely cannot downsize our home (we’re already crowded!), nor can we all fit in one vehicle. Even if we never went anywhere (impossible with foster children), we can’t get out of an upside-down car loan with our current debt load.

Knowing how to avoid our situation is great, but too late. Knowing what to do now, that would be better.

Reply

MakingaMillionDollars August 3, 2010 at 8:45 am

For most people, especially ones that are upside down on a home or car and have families, increasing their income is the best alternative. There are many ways out there these days to make and extra $1000 per month, it just takes the hard work to develop that income initially. Cutting costs is also a great way, but may not be practical for some. I have done both.

Reply

Leave a Comment

Previous post:

Next post: